It is hard to imagine what life would be like for many luxury brands if it was not for China. Put bluntly many of them would have ceased to exist if the financially empowered Chinese consumer had not developed an increasing appetite for luxury goods at the very moment the rest of the world was going into economic shock. The baton of demand was passed and, other than the Lehman Brother's collapse "dip", most Luxury brands did not skip a beat.
Indeed the last 4 years have been good ones for all brands with high sticker prices, all have floated upwards on a rising tide but to take the oft used analogy further - it's only when the tide recedes do you find out who has not been wearing swimming trunks.

The Chinese demand for luxury goods is not going to end - why would it - but there are some dynamic forces at play which will determine which brands will prosper and which will fail.

Assessing the state of the Chinese economy is beyond me, and I won't even try. But last week there were a couple of indicators that I do understand. The first were announcements by Pernod Ricard and then Remy Cointreau that a drop in demand for their high-end whiskies and cognac in China was impacting their performance. The reason for a decline in performance is, to quote the Financial Times Louise Lucas "..distillers’ pricey spirits are falling foul of Beijing’s frugality campaign, as officials obey orders from the top to reduce conspicuous consumption – a move already denting sales at high-end restaurants and luxury goods makers. The new government’s anti corruption drive is also hurting gifting".

The second was a report in the WSJ that the Chinese Air Carriers were experiencing a fall in profits, currency and fuel prices aside, due to a falling of in international demand which neatly links (are you still with me ?) to an illuminating article in today's Independent newspaper by Laura Chesters advancing the theory that Chinese HNWI are changing their buying habits and seeking not only less overt expressions of luxury but would rather purchase these closer to home. She quotes HSBC’s luxury expert Erwan Rambourg as saying “Chinese shoppers have become more sophisticated and discriminating, which means some established brands may lose market share - we call this a ‘first-mover disadvantage.”

So what do I make of all this;

(1) With a new, more austere, government, overt luxury will be played down - that's apparent in the short-term but time will tell if it becomes a sustained change in behaviour - brands need to develop products and rituals which are less flamboyant.

(2) Take the Chinese luxury consumer for granted at your peril. What sold yesterday, will not sell today. (1) is obviously linked to this but so is an emerging sense of esthetic. That's changing desires quickly. Heritage brands have an advantage here and need to draw on their reserves of craft based legitimacy.

(3) Luxury brands, no matter where headquartered, should have marketing personnel from China working alongside the global team. A quarterly "state visit" to Hong Kong and Shanghai no longer cuts it. The same goes for new product development teams.

(4) Luxury brands who have grown overly dependent on Chinese tourists shopping at their flagship stores need to diversify their audience. Reconnect with their European base. Fast.